Starbucks ‘ (SBUX) 12-session losing streak is finally over, with Wednesday’s gain making a small dent in its recent decline of more than 10%. Despite persistent China concerns, which have been underlying the selling for nearly three weeks, we view the recent rough patch as a way to buy shares in a quality company at a discount. The rampant decline in Starbucks, which began on Nov. 17, took shares from about $107 to $95 apiece as of Tuesday’s close, stripping away nearly $14 billion in market value. Even with Wednesday’s nearly 1.6% advance, the stock has lost more than 2% in 2023 versus the 35% year-to-date gain for the S & P 500 Consumer Discretionary sector . China is at the center of the souring investor sentiment regarding the coffee giant. The problem is two-fold: a slower than anticipated post-Covid recovery in the world’s second-largest economy, which is Starbucks’ second-largest market, as well as fierce competition from Chinese rivals such as Luckin Coffee, which is known to be highly promotional. Starbucks, on the other hand, dominates the premium coffee segment in China. SBUX YTD mountain SBUX stock performance year-to-date. “I’m a buyer here,” Jim Cramer said Wednesday, meaning the Club views Starbucks stock as a buy. Jim, however, did call the recent stock decline “disappointing,” since CEO Laxman Narasimhan hadn’t given investors a feeling that China was lagging. In fact, Starbucks last month delivered an upside surprise on China revenue and same-store sales in its fiscal 2023 fourth quarter . On Tuesday, however, Narasimhan said at a conference China was still struggling and business growth there was not coming back as fast as projected. “The recovery that we’re seeing is perhaps half the rate of what you would expect it to be given what you saw in the fourth quarter” of fiscal 2023, the CEO said. He did strike an optimistic tone: “Once you see China work through its challenges, I think you will see in the long-term it’s a business that is very strong.” Following Narasimhan’s remarks, it’s evident Starbucks has finally “widely telegraphed the weakness in China,” Jim concluded. Recognizing the challenges does not take away Starbucks’ incredible growth in China, and its goal of opening 9,000 stores by 2025. Jim thinks the stock has suffered enough, adding we would have bought more shares Wednesday if we hadn’t been restricted by the Club’s trading rules. Elsewhere, we’re finding comfort in Starbucks’ stable business in North America, which has been driven by resilient U.S. consumer demand. We also like how management has been finding opportunities to expand margins by enhancing the customer experience to boost traffic through its Reinvention plan. (Jim Cramer’s Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
An employee serves customers at a Starbucks mobile coffee cart at West Lake on June 7, 2022 in Hangzhou, Zhejiang Province of China.
Long Wei | Visual China Group | Getty Images
Starbucks‘ (SBUX) 12-session losing streak is finally over, with Wednesday’s gain making a small dent in its recent decline of more than 10%. Despite persistent China concerns, which have been underlying the selling for nearly three weeks, we view the recent rough patch as a way to buy shares in a quality company at a discount.
